Operational Risk Versus Capital Requirements Under New Italian Banking Capital Regulation: Are Small Banks Penalized?: A Clinical Study

Our research finds out the potential competitive impact of the new Italian Banking capital regulation for operational risks. Unlike the approach underlying the new discipline of the United States and many European countries, the Italian regulation allows access to the advanced measurement approaches (AMA) only to banks and financial intermediaries whose size or specialization requirements meet predefined levels. In our research we compare the capital at risk (estimated with a one-year holding period and a 99.9% confidence interval) and the capital charge calculated by basic indicator methodology. Using operational loss data of one bank that does not meet regulation constraints, we show how the new supervisory regulation on capital requirements unfairly penalize a large group of intermediaries.